College Student Credit Card Debt – 10 FAQs
June 28th, 2009 | by admin |
Face it — not all students have the advantage of carrying daddy’s plastic. Credit cards for most students are dangerous. It is important to understand and know how to use credit to your advantage so as not to be caught off guard by skyscraper fees and interest rates at the end of the month. Here are some frequently asked questions regarding college student credit:
1. How many students have credit cards?
Over 80 percent of college students have at least one credit card. More then 50 percent of freshmen carry plastic, and by sophomore year, over 90 percent of the the sophomore population have credit cards. Graduate students are no different, most of them carry as many as six cards. Credit card balance is directly proportional to level of education, with graduate students having the biggest credit card balance due to education expenses among the whole student body population.
2. Why are there so many credit card companies issuing cards for students?
Credit card companies know that when students can not pay their balances, they have the parents save them. They also offer attractive interest rates and benefits to college students because college is the time when most people get their first credit cards. Most people stick to their first credit card even after graduation. So, college students are great customers!
3. Are credit cards bad for college students?
Credit cards should not altogether be avoided by college students because they can help them rent a car and get a good car insurance policy, as well as provide emergency funds. Establishing a good credit history is important and needed after college. It is wise to get a credit card while studying and make sure that the credit card is paid on time. College students should also opt for one or two low-limit cards. Using such will be easier for the student to stay within his or her budget and afford to pay the bills on time.
4. What happens when a student cannot afford to pay on time?
Usually credit card companies will increase the interest rates, as well as charge a penalty if a student falls behind on his or her payments. This will leave the student with a bad credit history, and will be seen in the report for as long as seven years. This will affect the student’s ability to acquire future credit such as when he intends to buy a house or a car. Some students opt to enroll as part time students to cut up their work load and free up some time so they can work and pay for their balance. Some stop studying altogether and choose to work full-time to pay for their loans faster.
5. How can students manage finances so as not to fall heavily into debt?
Students should keep track of their money by mapping out a budget and listing all sources of income as well as every purchase and expense he makes. This way, the student will know exactly how much he has spent and how much he still has left.
6. How can you tell if a credit card company is giving you a good deal?
Before signing any contract or application, the terms, interest rates and hidden charges should be understood by the student. Cards that make students pay annual fees on top of the interest rates should be avoided. Students should also look for cards which offer interest-free grace periods provided that they are able to pay during a certain period of time.
7. What is the role of the parents when it comes to their children’s student credit?
Parents should encourage their children to spend money wisely and teach them to handle debt before they start college as much as possible. Some credit card companies offer to issue an extension card for the child of their client. There is even a new plan wherein students are given credit cards and parents can refill it with money, so the students will be able to make cash withdrawals of charges depending on the amount of money their card has. Parents should make their children realize that as much as possible, credit cards should only be used for emergencies – that divine faux fur coat slashed 70% off its price is not considered an emergency.
8. Is taking a cash advance a good idea?
Cash advances should be avoided. Not only will you pay interest from the time of withdrawal, cash advances will leave you with high paying interest rates with no grace period to speak of. There is often also a cash advance fee. Before you know it, you will be in a really big financial crisis should you start making cash advances a habit.
9. Is it worth it to use credit cards in paying for small amounts so that the points will accumulate and I will be entitled to nicer gifts towards the end of the month?
Sure, there are credit card companies that offer gifts depending on the number of points the client has accumulated, but paying using plastic for just about anything should be avoided because you will still have to pay interest rates. It is not worth it to get a nicer gift in the end but accumulate fees and pay interest for little things like a can of Diet Mountain Dew or a pizza. Using a credit card for everyday expenses is a bad habit to form.
10. What are penalty policies?
Should a client fall behind on his payment, credit card companies usually charge sky-high penalty rates and cancel their low-rate offers, so it is important to ask about this before signing up. It could also trigger universal default penalties which could increase interest rates on other cards!
Students should know how to manage finances and should be aware of the consequences should they miss payments of their credit cards before they go to college and apply for credit. It is the key to a financially stress-free life in the future.
By: Dennis Becker
1. How many students have credit cards?
Over 80 percent of college students have at least one credit card. More then 50 percent of freshmen carry plastic, and by sophomore year, over 90 percent of the the sophomore population have credit cards. Graduate students are no different, most of them carry as many as six cards. Credit card balance is directly proportional to level of education, with graduate students having the biggest credit card balance due to education expenses among the whole student body population.
2. Why are there so many credit card companies issuing cards for students?
Credit card companies know that when students can not pay their balances, they have the parents save them. They also offer attractive interest rates and benefits to college students because college is the time when most people get their first credit cards. Most people stick to their first credit card even after graduation. So, college students are great customers!
3. Are credit cards bad for college students?
Credit cards should not altogether be avoided by college students because they can help them rent a car and get a good car insurance policy, as well as provide emergency funds. Establishing a good credit history is important and needed after college. It is wise to get a credit card while studying and make sure that the credit card is paid on time. College students should also opt for one or two low-limit cards. Using such will be easier for the student to stay within his or her budget and afford to pay the bills on time.
4. What happens when a student cannot afford to pay on time?
Usually credit card companies will increase the interest rates, as well as charge a penalty if a student falls behind on his or her payments. This will leave the student with a bad credit history, and will be seen in the report for as long as seven years. This will affect the student’s ability to acquire future credit such as when he intends to buy a house or a car. Some students opt to enroll as part time students to cut up their work load and free up some time so they can work and pay for their balance. Some stop studying altogether and choose to work full-time to pay for their loans faster.
5. How can students manage finances so as not to fall heavily into debt?
Students should keep track of their money by mapping out a budget and listing all sources of income as well as every purchase and expense he makes. This way, the student will know exactly how much he has spent and how much he still has left.
6. How can you tell if a credit card company is giving you a good deal?
Before signing any contract or application, the terms, interest rates and hidden charges should be understood by the student. Cards that make students pay annual fees on top of the interest rates should be avoided. Students should also look for cards which offer interest-free grace periods provided that they are able to pay during a certain period of time.
7. What is the role of the parents when it comes to their children’s student credit?
Parents should encourage their children to spend money wisely and teach them to handle debt before they start college as much as possible. Some credit card companies offer to issue an extension card for the child of their client. There is even a new plan wherein students are given credit cards and parents can refill it with money, so the students will be able to make cash withdrawals of charges depending on the amount of money their card has. Parents should make their children realize that as much as possible, credit cards should only be used for emergencies – that divine faux fur coat slashed 70% off its price is not considered an emergency.
8. Is taking a cash advance a good idea?
Cash advances should be avoided. Not only will you pay interest from the time of withdrawal, cash advances will leave you with high paying interest rates with no grace period to speak of. There is often also a cash advance fee. Before you know it, you will be in a really big financial crisis should you start making cash advances a habit.
9. Is it worth it to use credit cards in paying for small amounts so that the points will accumulate and I will be entitled to nicer gifts towards the end of the month?
Sure, there are credit card companies that offer gifts depending on the number of points the client has accumulated, but paying using plastic for just about anything should be avoided because you will still have to pay interest rates. It is not worth it to get a nicer gift in the end but accumulate fees and pay interest for little things like a can of Diet Mountain Dew or a pizza. Using a credit card for everyday expenses is a bad habit to form.
10. What are penalty policies?
Should a client fall behind on his payment, credit card companies usually charge sky-high penalty rates and cancel their low-rate offers, so it is important to ask about this before signing up. It could also trigger universal default penalties which could increase interest rates on other cards!
Students should know how to manage finances and should be aware of the consequences should they miss payments of their credit cards before they go to college and apply for credit. It is the key to a financially stress-free life in the future.
By: Dennis Becker